Britons are getting a raw deal from many cash savings accounts, the City regulator said yesterday.
The Financial Conduct Authority (FCA) also found that some customers were finding it hard to switch their savings to rival providers.
The FCA unveiled plans to make it easier to compare cash savings accounts, after it found £160bn of funds were earning the same or less than the 0.5 per cent Bank of England interest rate.
Older accounts, representing a significant chunk of the £700bn market, tended to have lower rates than those more recently opened, a study by the FCA found.
The FCA wants to make it easier for consumers to compare accounts. The FCA proposals, which will be consulted on over the next month, also include reducing the current 15-day switching time for cash ISAs.
The watchdog said many consumers found it difficult to know what rate they were on, or were put off switching because they expected it to be too much hassle. It found 80 per cent of easy-access accounts had not been switched in the last three years.
FCA research concluded that simple changes in the way banks communicate to their customers could “significantly increase” consumers’ ability to shop around.
It wants consumers to be given clearer information about how the interest paid on variable rate accounts may fall the longer they hold the account, and about how the rates they receive compare with alternative products.
The watchdog has stopped short of banning introductory bonus rates, as they may benefit some customers. However, it expects providers to improve the way they communicate about interest rate changes and when the bonus rate expired.
Christopher Woolard, director of strategy and competition at the FCA, said: “In a good market, firms should be competing to offer the best possible deal and consumers should have the information they need to help them shop around.
“We want to see firms making simple information much easier to find. More also needs to be done to reduce the hassle for consumers to switch their savings.
“The steps we have proposed today are designed to make the market more dynamic, working in everyone’s interest.”
It is the latest study from the FCA, which faces pressure to boost competition in financial services, a sector some commentators believe is too concentrated in the hands of the ‘big five’ banks, HSBC, Lloyds, Barclays, RBS and Santander UK.
The five biggest providers pay on average “materially” lower rates on easy access savings accounts than smaller rivals, the study said.
Responding to the report, Richard Lloyd, the executive director of consumer group Which?, said yesterday: “For too long, banks and building societies have left customers trapped in savings accounts paying woefully low interest rates and losing out on billions.
“We now expect to see the industry working with the regulator to make these recommendations a reality as soon as possible. The banks must quickly start playing fair and help consumers get a good deal.”
Previous research by Which? had found that people were losing out on £4.3bn a year by leaving savings in poor-value accounts.
A spokesman for the British Bankers’ Association said yesterday: “These have been frustrating years for savers. More than five years of the Bank of England’s base rate at a record low has fostered a low interest rate environment and that can be hard.
“The FCA’s report identifies a number of proposed remedies which have the potential to make life even easier for customers and we will consider these carefully.
“We always encourage customers to review their savings regularly and to shop around for a better deal.”